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 > OMERS - Home > Retirees > Publications > Retired Member News 46 - Winter 2009/2010 > OMERS plan to manage funding deficit

OMERS plan to manage funding deficit

There may be indications that the recession is coming to an end, but its effects are still being felt.

 

In 2008, the OMERS Fund posted a $279 million funding shortfall. This could grow to more than $6 billion over the next few years, as the full impact of 2008 is reflected in the funding balance sheet (OMERS will report 2009 results in 2010).

 

The main reason the deficit continues to grow is the pension industry practice of actuarial “smoothing,” which helps cushion a plan’s funding from volatile market conditions. Instead of the losses from 2008 being applied immediately, they are factored into OMERS funding over a longer period.

 

Like all pension plans, OMERS is required to eliminate any funding deficit, and is considering all available options: reduce benefits on a go-forward basis, raise contribution rates, and increase investment returns.

 

In the past, OMERS was required to use the Plan surplus for a contribution holiday and improving Plan benefits; this had the effect of eroding the funding cushion.

Benefits

“Even if OMERS benefits change, they would not affect retirees currently receiving pensions, nor would they affect pension benefits accrued to date,” said Jennifer Brown, OMERS Chief Pension Officer. “Changes would only affect pension benefits earned after the date of any change.”

Contribution rates

OMERS Sponsors Corporation (SC) approved an increase to member and employer contribution rates, effective the first full pay period in 2010.

 

“These contribution rate increa-ses will help address the initial $279 million part of the overall funding shortfall. More significant contribution increases or changes to benefits, or a combination of both, will be required in the next several years as the remaining $6 billion is recognized on the balance sheet of the Fund,” said Marianne Love, SC Co-Chair.

Investment strategy

JenniferBrown
“OMERS invests for the long-term, the Plan remains stable, and we are taking steps to address funding.”– Jennifer Brown, OMERS Chief Pension Officer
From an investment perspective, OMERS had taken steps, before the market downturn, to change our investment strategy – moving more of the Fund’s assets from public markets to less-volatile private markets. This move helped to offset some of the market losses, and it continues to place the Fund in a good position to face the current storm, and to take advantage of opportunities that present themselves – both now and down the road.

 

“Many pension plans continue to face funding challenges, and OMERS is no exception,” said Ms. Brown. “But, as we’ve stated before, OMERS invests for the long-term, the Plan remains stable, and we are taking steps to address funding.”

 

The next OMERS Plan valuation is due in December 2009.

 

“The results of that valuation will give a clearer picture of the Plan’s funded status,” said Brian O’Keefe, SC Co-Chair. “This will help us to determine the extent of any required changes. We will communicate any news in this regard.”

 

OMERS remains confident we have the expertise, strategy, and staff to help us weather today’s economic climate, and to continue searching for opportunities to grow stronger in the future.